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Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

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Question 71

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Assume Idaho Company recorded the following adjusting journal entry at year-end: If the beginning balance in prepaid insurance was $500, and $2,500 was paid for an insurance premium during the year, what is the ending balance in the prepaid insurance account after the above adjusting entry? $\begin{array} { | c | r | r | } \hline \text { Insurance expense } & \$ 2,000 & \\\hline \text { Prepaid insurance } & & \$ 2,000 \\\hline\end{array}$

A) $1,200.
B) $700.
C) $2,200.
D) $1,000.

E) B) and D)
F) B) and C)

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Question 72

Multiple Choice

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Which of the following journal entries is created to adjust for an accrual? A. Accounts receivable $\quad$ Revenues B. Interest expense $\quad$ Cash C. Accounts receivable $\quad$ Deferred revenue D. Rent expense $\quad$ Prepaid rent

A) Option A
B) Option B
C) Option C
D) Option D

E) None of the above
F) A) and B)

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Question 73

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Accounts that retain their balance from one period to the next are referred to as permanent accounts and include balance sheet accounts.

On July 1, 2014, Goode Company borrowed $100,000. The company signed a note payable with interest at 6 percent per year. The note and interest are due on December 31, 2014. On December 31, 2014, Goode paid $103,000 to settle the debt in full. Assuming no accruals for interest have been made during the year, transaction analysis of the $103,000 cash payment on December 31, 2014 should reflect which of the following?

What are the purposes of closing entries? Describe permanent and temporary accounts.

Which of the following accounts is used to initially record a deferral?

On December 31, Krug Company reported stockholders' equity of $280,000 prior to the following adjusting entries: Depreciation expense: $31,000. Accrued service revenues: $29,000. Accrued expenses: $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned; $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. How much is Krug's stockholders' equity after adjusting entries?

On September 1, 2014, Fast Track, Inc. was started with $30,000 invested by the owners as contributed capital. On September 30, 2014, the accounting records contained the following amounts: Required: Prepare a statement of stockholders' equity for September, the first month of operation. Ignore income taxes.

Which of the following account balances would be closed at year-end by crediting the account?

An accrued expense is incurred and also paid for in the current period.

On April 1, 2014, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2014 adjusting entry?

Which of the following transactions and events results in an increase in liabilities and a decrease in net income?

Air Cargo Company recorded the following adjusting entries at the end of the accounting year, December 31, 2014: Before these adjusting entries were recorded, a partial unadjusted trial balance reflected the following: Required: Prepare the closing entries for Air Cargo Company at December 31, 2014.

Rent of $4,000 collected in advance was recorded as unearned rent revenue. At the end of the accounting period, half the rent was earned. The related adjusting entry should be a credit to rent revenue for $2,000 and a debit to unearned rent revenue for $2,000.

Which of the following correctly describes the following adjusting journal entry? Accounts receivable $\quad$ Franchise fees revenue

Which of the following journal entries is created as the result of a deferral? A. Salaries expense $\quad$ Salaries payable B. Interest expense $\quad$ Interest payable C. Cash $\quad$ Unearned revenue D. Accounts receivable $\quad$ Deferred revenue